Consumer adoption of electronic bill payment and presentment (also referred to as “EBPP”) has been much slower than anticipated. Many banks are eager to encourage their customers to use bill payment. Electronic payments would also provide banks with savings in cost and resources. Although variations in costs may alter the calculation, many banks and customers find that EBPP services are attractive provided that several bills (e.g., seven recurring bills) can be paid.
In general, initiating bill payment services, such as an EBPP, may be daunting for consumers. Many banks do not make the process easy, and at best provide only a list of billers. For billers already listed, payers must add information regarding their individual account numbers and other information necessary to make payments. For all other billers, complete information about the biller must be input manually by the customer or bill payer. This can be a tedious and time consuming process with a high potential for errors and mistakes.
On the merchant side, replacing checks with electronic payments for automatic reconciliation would provide cost reductions. Transactions may be completed more efficiently and in a more timely manner.
Checkfree™ is the dominant bill payment service provider, largely because at great cost they developed a very large biller database. However, even though Checkfree™ has attempted to increase the number of billers that will accept electronic payment, each month a substantial percentage of Checkfree™ bills are still sent physically through the mail. As a result, the efficiencies associated with automatic bill payment are not realized.
As with many new payment systems, EBPP faces the classic ‘chicken or the egg’ conundrum. Both payers and billers generally require a clear value proposition before they will change their behavior. Accelerating the change to EBPP will require benefits to be increased or the burdens to be reduced. Billers need an adequate number of payers willing to pay electronically to justify making changes. From the perspective of payers, the aggravation of setting up a bill payment account must be reduced and the number of bills payable electronically increased.
If a bank operates a biller's lockbox and holds the payer's demand deposit account (also referred to as a “DDA”), a simple on-the-bank transaction is possible.
Further, a payer's bank may not know which of the biller's accounts should be credited and will rarely know the specific customer account number. Thus, the payer's bank does not have enough information from a check to facilitate future electronic transfers.
The biller's lockbox bank may have the information needed to replace future checks with electronic transfers (e.g., the payer's checking account number, payer's account number with biller and biller's payment account). However, the lockbox bank does not have the payer customer relationship.
Other drawbacks may also be present.